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Precious Metals Still Relevant​

There was a time when the dropping prices in precious metals markets led some investors and institutions to question their relevancy in the global marketplace. Was it just tradition and nostalgia that drove people to invest in gold and silver? The shifts in supply and demand may have led some analysts to think so. The truth is that precious metals may have seen some changes in fundamentals over the years, but they are as relevant as ever.

Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Gold is usually the first metal people think of when they hear the term bullion or precious metal. It has long held a position of prestige. It represented wealth and even sovereignty throughout history and across many cultures. Why was it so important? It’s extremely ductile, so it wasn’t any good for tools. That shortcoming made it highly prized for ornaments, and being a rarity helps too. In a modern society where status can be declared with things like cars, clothes, and big houses, what role does gold really play?

Gold is still just as relevant as a status symbol with jewelry and other ornaments, albeit perhaps not as dominantly as it was in previous centuries. Instead, it shares the label with other precious metals like platinum and silver. However, silver still seems to take a backseat value-wise owing to its greater availability. Platinum can challenge gold for status – think of the name shift in credit cards from gold to platinum over the last few decades – but countries like China and India still see brisker business in gold jewelry. There are cultural traditions in both of those Asian centers for demand that include buying gold as gifts for holidays and weddings. That is unlikely to change any time soon, and that is a key factor for gold demand in the modern world.

The reason this Asian interest and tradition is important is because both nations have seen such growth in their urban populations. The rural migration and burgeoning industries in India and China have built up a strong middle class population that is able to flaunt a certain amount of discretionary income. This has previously beefed up demand for precious metals, and it is unlikely to slow. Even during the economic downturn since 2008, there is strength to be seen in many gold and even silver markets as farmers saw improved incomes from crop sales. High inflation in both nations also supported fresh interest in gold as a potential hedging tool.

Precious metals have not lost their luster when it comes to hedging. Unlike many national currencies, gold cannot be devalued or undermined by economic policies. You can’t print more gold to try to stimulate the economy. You may be able to find additional gold reserves, but certainly not in the same volumes that you can print US dollars. That means that the potential for gold to maintain and preserve assets cannot be understated. As a means of hedging against losses in other markets or against the erosion of national currencies, gold still shines.

What about silver?

Silver lost a decent portion of its demand base when cameras started to go digital and film wasn’t needed in the same quantities as seen in previous decades. Many silver bears will....